Question
ParentCo has a net investment in foreign subsidiary of
USD 50m. It borrows USD 30m to hedge part of the net investment. The USD loan is designated as a hedge of net investment. During the year, the foreign currency strengthens, producing an exchange gain on the borrowings and on translation of the net investment. How are these amounts presented?Solution
For an effective net investment hedge, the effective portion of the gain/loss on the hedging instrument is recognised in OCI and presented in the foreign currency translation reserve; any ineffective portion goes to P&L. Translation of the net investment goes to OCI. They offset in OCI to the extent effective.
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